Everett Moreland

Please email me your name and phone number and I'll call you.

411 does not apply to governmental plans. Govermental plans frequently provide for distribution shortly after termination of employment.

I've advised clients on this, and the answer depends on the facts. I recommend that you hire a local employee benefits lawyer. You are unlikely to get a correct answer from a bulletin board where the answer depends on complex facts and on state income tax law.

Carol: You say that "403(B) and 457 plans . . . can provide for in-service transfers to purchase service credit, even if an employee is not entitled to a distribution." What's your level of confidence in that statement? The statute can be read to mean that a trustee-to-trustee transfer at a time when the account is distributable is not includible in gross income.

The plan may cover all employees if the hospital is a government hospital. The plan may cover only a select group of management and highly compensated employees if the hospital is a 501©(3). Some government hospitals also have 501©(3) status (so employees can make 403(B) contributions), in which case the plan may cover all employees. As to what is involved in administration, the short answer is you need to see a Missouri employee benefits lawyer and be willing to pay him or her lots of money and also be willing to spend a lot of time learning.

Start with Revenue Procedure 2001-17, § 12.01(3). It can't be self-corrected; it must be submitted to the IRS>

I'm drafting a defined benefit plan and need to decide whether to deal with the restricted employee rules by (1) providing a term annuity with month payments equal to those under a straight life annuity or (2) following Ms. Dorsa's suggestion by providing that a restricted HCE who elects a lump sum will receive monthly payments equal to those under a straight life annuity until the restrictions cease to apply and then will be cashed out. My questions are: (1) would following Ms. Dorsa's suggestion violate the 1.401(a)(4)-4 availability rules because it makes available to restricted HCEs a payment form not available to NHCEs and (2) should I be asking other questions?

Sorry, but after 15 years I have only a vague memory that I was concerned about the cases.

Income will result immediately if the notes are transferable. I did something like this 15 years ago with notes and was concerned about some old cases dealing with notes. I would not use notes unless you are comfortable that they will not cause immediate taxation.

This is not a case where "we will have to wait until the actual new code provisions, and then the Service's regulatory interpretations are published before we have any real clue." The answer is clear.

Following is Section 615 of the Act: SEC. 615. REPEAL OF COORDINATION REQUIREMENTS FOR DEFERRED COMPENSATION PLANS OF STATE AND LOCAL GOVERNMENTS AND TAX-EXEMPT ORGANIZATIONS. (a) In General.--Subsection © of section 457 (relating to deferred compensation plans of State and local governments and tax-exempt organizations), as amended by section 611, is amended to read as follows: "© Limitation.--The maximum amount of the compensation of any one individual which may be deferred under subsection (a) during any taxable year shall not exceed the amount in effect under subsection (B)(2)(A) (as modified by any adjustment provided under subsection (B)(3))." (B) Effective Date.--The amendment made by subsection (a) shall apply to years beginning after December 31, 2001. Following is the Conference Committee report on Section 615 of the Act: (e) Repeal of coordination requirements for deferred compensation plans of state and local governments and tax-exempt organizations (sec. 205 of the House bill, sec. 615 of the Senate amendment, and sec. 457 of the Code) Present Law Compensation deferred under an eligible deferred compensation plan of a tax-exempt or State and local government employer (a "section 457 plan") is not includible in gross income until paid or made available. In general, the maximum permitted annual deferral under such a plan is the lesser of (1) $8,500 (in 2001) or (2) 33 1/3 percent of compensation. The $8,500 limit is increased for inflation in $500 increments. Under a special catch-up rule, a section 457 plan may provide that, for one or more of the participant's last three years before retirement, the otherwise applicable limit is increased to the lesser of (1) $15,000 or (2) the sum of the otherwise applicable limit for the year plus the amount by which the limit applicable in preceding years of participation exceeded the deferrals for that year. The $8,500 limit (as modified under the catch-up rule), applies to all deferrals under all section 457 plans in which the individual participates. In addition, in applying the $8,500 limit, contributions under a tax-sheltered annuity ("section 403(B) annuity"), elective deferrals under a qualified cash or deferred arrangement ("section 401(k) plan"), salary reduction contributions under a simplified employee pension plan ("SEP"), and contributions under a SIMPLE plan are taken into account. Further, the amount deferred under a section 457 plan is taken into account in applying a special catch-up rule for section 403(B) annuities. House Bill The House bill repeals the rules coordinating the section 457 dollar limit with contributions under other types of plans.70 __________ 70The limits on deferrals under a section 457 plan are modified under other provisions of the House bill. __________ Effective date.-- The House bill is effective for years beginning after December 31, 2001. Senate Amendment The Senate amendment is the same as the House bill. Conference Agreement The conference agreement follows the House bill and the Senate amendment.

It is, and also for physicians working for tax-exempts

yes

457(B) plans of tax-exempt employers must be unfunded and maintained primarily for "a select group of management or highly compensated employees." Participants can contribute the full amount to both a 401(k) plan and a 457(B) plan. Participants cannot rollover payments from a 457(B) plan of a tax-exempt employer; these payments will be taxed as wages.

Your interpretation seems to be consistent with the PLR; a failure to elect in one year to contribute seems not to bar an election in a later year to contribute.

A plan can allow a surviving spouse to elect a lump sum. Whether the plan in question allows a surviving spouse to elect a lump sum depends on the terms of the plan document.

Carol: My impression from the ruling is that the election, once made, applies to all future years. Following is the portion of the ruling describing the election. I would appreciate your comment on this. Also, I have assumed that a governmental plan should not implement such an election without a PLR. Is that your assessment? "Proposed Amendment Number One provides that each Group B employee, at the beginning of each plan year, may irrevocably elect to participate in the mandatory participant contribution portion of Plan X by electing to contribute 3 percent, 6 percent, or 20 percent of the Group B employee's compensation to Plan X for each plan year. Once made, the Group B employee's election is irrevocable and shall remain in force until the Group B employee ceases to be an employee eligible to participate in Group B or terminates employment."

PLR 9540061 discusses this

yes

Section 641(a) of H.R. 1836, the Economic Growth and Tax Relief Act of 2001, passed by the House and Senate last Saturday, available at http://www.house.gov/rules/, allows rollovers from a 457 plan to a qualified plan, an IRA, a 403(B), and another 457 plan starting 1/1/02.

Eleventh Amendment immunity applies to states, not to local governments

No. Only if required by the plan document or state law.

Prayer is the best solution I've seen. I don't know how you can correct this, other than possibly to currently distribute all benefits. You could freeze the current plan and start a new one limited to a select group.

I have implemented the transfer of employees' account balances in a governmental cash balance plan to a profit sharing plan. I would be happy to discuss this with you.

The part of the required distribution rules dealing with separate accounts recognizes that a participant may name different beneficiaries for different accounts in a plan.